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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Financial Statement Deficiencies The following is the complete set of financial statements prepared by Obertin Corporation:

Chapter 5, Problem 9P, Financial Statement Deficiencies The following is the complete set of financial statements prepared , example  1

Chapter 5, Problem 9P, Financial Statement Deficiencies The following is the complete set of financial statements prepared , example  2

Chapter 5, Problem 9P, Financial Statement Deficiencies The following is the complete set of financial statements prepared , example  3

Notes to Financial Statements:

1. Goodwill is not being reviewed for impairment. The goodwill was acquired in 2019.

2. The amount, Due to Grant Inc., is contingent upon the outcome of a lawsuit which is currently pending. The amount of loss, if any, is not expected to exceed $300,000.

Required:

Next Level Identify and explain the deficiencies in the presentation of Oberlin’s financial statements. There are no arithmetic errors in the statements. Organize your answer as follows:

  1. 1. Deficiencies in the statement of income and retained earnings
  2. 2. Deficiencies in the balance sheet
  3. 3. General comments

If an item appears on both statements, identify the deficiencies for each statement separately.

1.

To determine

Explain the deficiencies that are observed in the income and retained earnings statement of Company O.

Explanation

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

The following deficiencies are observed in the income and retained earnings statement as follows:

Purchase discounts: Purchase discounts should be recorded as a reduction in purchases while computing the cost of goods sold.

Gain on increased fair value of real estate: According to GAAP, an unrealized gain should not form a part of the income statement, hence this should not be reported in the income statement.

Gain on sale of treasury stock: This should not be a part of income statement rather it should be reported as an addition to paid-in capital.

Correction of error in last years’ statement: This should be considered as a prior period adjustment, it should be added to the beginning balance of the retained earnings net of applicable income tax effect...

2.

To determine

Explain the deficiencies that are observed in the balance sheet of Company O.

3.

To determine

Provide general comments with regard to the financial statements mentioned in requirement 1 and 2.

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